Evaluating the interactive effect of domestic and global stock market variables on the depth of the financial system in Sub-Saharan African countries: a panel ARDL approach

Purpose - This study investigated the interactive impact of global and domestic stock market variables on the depth of the financial system in Sub-Saharan African (SSA) countries from 1990 to 2018. Design/methodology/approach - The study used the mean group and pooled mean group estimators for the dynamic heterogeneous panel. Findings - The results provide strong statistical evidence that the depth of the financial system in SSA countries is influenced by a combination of local and international stock market indicators. While the local variables exert a positive influence, the global indicator tends to negatively affect the depth of the system, particularly the monetization ratio. Practical implications - While the tendency of portfolio adjustments and reversal can be inferred, the study stresses the need for a more globalized approach to financial policy formulation and implementation even as the trend of global financializaton gets more robust and more profound. Originality/value - This study is unique in that, unlike prior ones, it has extended the debate on the role of the stock market in financial deepening from a domestic to an international dimension. Financial policy making can be aided by the authors' findings through looking at the financial deepening-stock market linkage from both domestic and globalized perspectives.